Under conditions set by the previous government in 2009, Yanzhou was required to reduce its stake in Yancoal to 70 per cent by the end of this year.

However, in July this year Yanzhou announce plans to take 100 per cent control of Yancoal and remove it from the Australian share market.

Yanzhou currently holds 78 per cent of Yancoal, which operates 10 coal mines in Queensland, New South Wales and Western Australia and is one of Australia's biggest publicly listed coal miners.

Mr Hockey has scrapped those conditions, and says the Government is open to Yanzhou taking a 100 per cent stake.

The Treasurer says Yanzhou has requested that the conditions on its Yancoal investment be lifted.

"In commitments provided to me, Yanzhou has undertaken to continue to support Yancoal's ongoing operations in Australia, thereby maintaining its position as a major regional employer," Mr Hockey said in statement.

"So long as Yanzhou continues to own at least 51 per cent of the shares of Yancoal, Yanzhou will ensure Yancoal continues to operate so that it remains solvent.

"In addition, Yanzhou will extend its existing loans to Yancoal if required, and will support Yancoal's plans to expand the Moolarben open cut mine."

Yancoal shares placed in trading halt

Yancoal's share price jumped after the announcement, and was trading 2.3 per cent higher at 67 cents before being placed into a trading halt.

The company is expected to make an announcement on its future before Friday morning.

It has a market value of just above $666 million.

Yancoal's share price has dropped significantly since the company debuted on the share market in June last year.

In his statement, Mr Hockey says the ownership conditions set in 2009 provided Yanzhou with seek approval to change Yancoal's ownership structure if they were "impacted by changes in economic conditions or other factors".

"Since those conditions were imposed, significant challenges have emerged for the Australian coal industry, including slowing demand, declining coal prices and a number of mine closures."

Mr Hockey has also lifted conditions requiring Yanzhou to reduce its holdings in Felix Resources to less than 50 per cent by the end of the year, and to reduce its interest in the Syntech Resources and Premier Coal mines to less than 70 per cent by the end of next year.